Posted on Nov 10, 2021, 6:58 p.m.
Almost a year after Brexit, it is still too early to break some ties. The European Commission has therefore decided to extend a temporary exemption which allows European Union banks and fund managers to clear their transactions in the United Kingdom.
“In order to address a possible short-term risk to financial stability linked to a sudden interruption in access to clearing services, the Commission will soon propose an extension of equivalence for UK-based clearing houses. Uni, ”the Commission said on Wednesday.
Deadline too short
Clearing houses play a central role in market transactions. They secure them by being placed between buyer and seller, thus ensuring that everyone respects their commitments.
In London, LCH is an industry giant in euro transactions. The waiver allowing banks to access UK clearing houses was due to expire next June, but the European Union (EU) believes the deadline is too short, said Mairead McGuinness, the commissioner for financial services.
However, the Commission “will continue its work aimed at developing the capacity of clearing houses based in the European Union in order to reduce this excessive dependence” on the City.
The European stock exchange operator Euronext has already planned to significantly develop its clearing activities. But the Union does not yet have an infrastructure or a range of services as attractive as that of the City. However, companies prefer to use a single clearinghouse for their transactions because it is less expensive to consolidate and clear positions in multiple currencies and types of products.
Although the length of the extension was not disclosed, Mairead McGuinness said it “should be long enough to […] allow the EU’s supervisory system to be revised ”for clearing houses. This deadline will be specified early next year, she added.
The compensation battle has been a major issue in the post-Brexit era since it became clear that the EU and UK would fail to reach a comprehensive financial services deal.
MH with Bloomberg